OPEC news and predictability of oil futures returns and volatility: Evidence from a nonparametric causality-in-quantiles approach |
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| Institution: | 1. Department of Economics, University of Pretoria, Pretoria 0002, South Africa;2. Department of Economics, Pusan National University, Busan 46241, Republic of Korea;1. Eastern Mediterranean University, Famagusta, Northern Cyprus, via Mersin 10, Turkey;2. Montpellier Business School, Montpellier, France;3. University of Pretoria, Pretoria 0002, South Africa;4. Department of Economics, University of New Haven, 300 Boston Post Road, West Haven, CT 06516, USA;5. University of Pretoria, South Africa;6. IPAG Business School, Paris, France;1. Department of Management Sciences, IQRA University, Karachi 75300, Pakistan;2. Energy and Sustainable Development, Montpellier Business School, France |
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| Abstract: | This paper provides a novel perspective to the predictive ability of OPEC meeting dates and production announcements for (Brent Crude and West Texas Intermediate) oil futures market returns and GARCH-based volatility using a nonparametric quantile-based methodology. We show a nonlinear relationship between oil futures returns and OPEC-based predictors; hence, linear Granger causality tests are misspecified and the linear model results of non-predictability are unreliable. When the quantile-causality test is implemented, we observe that the impact of OPEC variables is restricted to Brent Crude futures only (with no effect observed for the WTI market). Specifically, OPEC production announcements, and meeting dates predict only lower quantiles of the conditional distribution of Brent futures market returns. While, predictability of volatility covers the majority of the quantile distribution, barring extreme ends. |
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| Keywords: | Oil futures markets Returns and volatility OPEC announcements Nonparametric quantile causality |
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